Q4 snap: higher operating costs deliver a miss

PFG delivered a weak operating result as in-line revenues were undermined by higher costs resulting in a ~10% EPS miss. RIS Fee, RIS Spread and Principal International all missed our operating earnings forecasts by more than 10%. However, following a strong year it's possible that management simply took the opportunity to invest in the various operating divisions. Net cashflows were negative in RIS Fee and PGI, which was also disappointing, but net revenue margins generally held up. There was no buyback as management announced $167m of international acquisitions. Overall, while the result was weak, we think the market is likely to look through this result and focus on 2018, which looks promising given the strong start to the year for equity markets but the call will be important regarding costs.